On 29 October 2009 HM Treasury in London published a report on
the British Offshore Finance Centres, commissioned by The
Chancellor of the Exchequer in December 2008 and prepared by Mr
Michael Foot, a former senior Bank of England official. The report
was intended to identify the long-term opportunities as well as the
challenges facing those OFCs, which comprise the three British
Crown Dependencies (Jersey, Guernsey and the Isle of Man) and six
British overseas territories (Anguilla, Bermuda, British Virgin
Islands, the Cayman Islands, Gibraltar, and the Turks & Caicos
Islands), particularly following the turmoil in the financial
markets during 2007 and 2008 and the subsequent impact on the world
The Review notes that most of these territories are heavily
reliant on financial services and that in some of the territories,
economic decisions taken during a prolonged period of economic
growth had weakened their ability to manage their finances during
the current downturn.
The Review examines the systems of financial supervision and
transparency; systems of taxation, specifically the ability of
Governments in each of the territories to raise sufficient revenues
to meet their spending needs; international co-operation,
specifically in fighting financial crime and exchanging information
on tax and other matters; and the impact of the OFCs on the UK.
The Review delivers a very favourable report on the Crown
Dependencies in general and especially on Jersey. Mr Foot notes,
for example, that "The Crown Dependencies make a significant
contribution to the liquidity of the UK market", going on to
note that throughout the banking crisis in the UK, Jersey had been
the largest provider of net deposits to the UK banking system, with
net deposits with UK banks in the region of $218.3 billion in the
second quarter of 2009 (at end Q2 2009, Jersey banks and other
entities had placed $314.0 billion with UK banks but in turn owed
$95.7 billion to UK banks). The Review also notes the significant
fees and other benefits that accrue to UK based investment
managers, lawyers, accountants and tax advisers through work that
originates within the Crown Dependencies.
Mr Foot draws on the evidence contained in a report prepared for
HM Treasury by Deloitte in London to conclude that "the amount
of UK tax avoided by UK corporates using the nine jurisdictions was
likely to be significantly lower than estimates produced by
previous studies have suggested", thus helping to dispel some
of the myths that have been put about by detractors of the British
OFCs. The Review notes that whilst some of the OFCs have sought to
attract business through the absence of corporate taxes or indirect
taxes such as VAT, there is a "compelling case" for the
OFCs to change their tax systems and introduce such taxes, in order
to balance their government budgets. Jersey has a Goods and
Services Tax, similar to VAT, and has announced a comprehensive
review of its fiscal system, including corporate taxes. However,
other OFCs will find this recommendation more difficult to accept:
for example, in spite of facing a significant budget deficit, the
government of the Cayman Islands is resisting pressure from the UK
to introduce some form of corporate tax, whilst the government in
Guernsey is resisting the introduction of GST or VAT.
Mr Foot notes in his report the recent very positive assessment
by the IMF of Jersey's financial services regulation
The Review has been welcomed, both in Jersey and in the UK. In
London, Lord Bach, the Minister for the Crown Dependencies at the
Ministry of Justice, said: "I welcome the publication of this
considered and helpful review. As it recognises, the Crown
Dependencies have much to be proud of in terms of meeting high
international standards. This is, however, a fast changing and
increasingly complex financial environment. The report is clear
that there is no room for complacency and we are confident that the
Crown Dependencies will continue to lead the way in terms of
meeting new standards as they evolve."
A few days after the Foot Report was published, the positive
contribution of offshore finance centres to the global economy was
reaffirmed by American economist Professor James Hines. The
'Hines Report' revealed that Crown dependencies added
$332.5 billion into UK banks in the second quarter of 2009,
two-thirds of which was provided by Jersey.
In his report Professor Hines commented that "the evidence
indicates that offshore centres contribute to financial development
and stability in neighbouring countries; encouraging investment,
employment and other aspects of business development. They have
salutary effects on tax competition, promote good government and
enhance economic growth elsewhere in the world."
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